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Finland works on a broad front to achieve global tax rules and strengthen the taxation capacity of developing countries

Ministry for Foreign Affairs
Publication date 16.4.2015 14.45
Press release 103/2015

International tax avoidance and profit shifting undermine developing countries’ preconditions to increase their own funding. At the same time they cause major losses of tax revenue in industrial countries. The G20 and the EU have made tax issues a political priority. The UN stresses tax issues in negotiations on the financing of new sustainable development goals. Common problems call for solutions benefiting all parties.

More than a year ago the Government, as part of the Government Programme, published the Government Action Programme to Combat International Tax Avoidance. The programme’s areas of focus are: securing the tax base and counteracting harmful tax competition; intensified tax supervision and exchange of information; public access to ownership information; public procurement criteria; and the strengthening the importance of tax issues in development policy. The programme has been implemented actively.

The Ministry of Finance and the Tax Administration participate in EU and OECD projects in order to prevent aggressive tax planning. OECD-led efforts to curb tax avoidance and profit shifting (the Base Erosion and Profit Shifting project, or BEPS) play an important role in this. Developing countries’ possibilities to take part in the work of BEPS improved significantly at the end of 2014 when their representatives received participant status for OECD meetings.

The Ministry for Foreign Affairs provides support from development cooperation funds to strengthen the expertise of the African Tax Administration Forum (ATAF) in the work of BEPS. Technical expert assistance provided by the Tax Administration supplements the financial input. In this framework Tax Administration experts, among other things, train African corporate tax experts so they in turn can train tax inspectors in their own tax administrations. Expert assistance is at the same time Finland’s contribution to the OECD initiative Tax Inspectors Without Borders.

“The potential impact of new global tax rules on developing countries is many tens of times greater than development assistance; therefore, the BEPS programme and Finland’s strong influence in the programme, also from the perspective of developing countries, are very important,” says Minister for International Development Sirpa Paatero.

The stricter policy regarding tax havens strongly advocated on the World Bank’s Board by Finland was approved as the Bank’s policy in private sector activities. On the Board of the international Extractive Industries Transparency Initiative (EITI), Finland has promoted country-specific reporting for multinational companies, beneficial ownership and publicly available registers. A twelve-country pilot project on beneficial ownership is underway; its results are expected in the autumn of 2015.

Intensification of tax collection is the most sustainable way to increase developing countries’ own financial base and reduce their dependence on development assistance. Strengthening the taxation capacity of developing countries is a rising trend in a new type of development policy. According to OECD studies, successful development assistance investments targeted at taxation capacity have at least a fourfold return; there are instances of up to 20-fold returns. This reveals the catalytic effect of development assistance.

The Ministry for Foreign Affairs has launched a comprehensive programme to support developing countries’ tax administrations, NGOs and research work on the topic. Finland, in cooperation with other donors, supports programmes to reform public administration – among others, the tax administration – in Tanzania, Mozambique and Zambia.

The development of good governance and effective institutions requires that citizens in developing countries are aware of their Governments’ responsibility. Finland finances the work done by international NGOs such as Oxfam to train civil society organisations, parliamentarians and journalists. Evidence of the impacts of capital flight on the structures of individual partner countries is obtained from research cooperation with the Global Financial Integrity.

Work continues on the global, EU and national level. The BEPS programme recommendations and minimum standards for national legislation will be completed in September 2015. The project is also useful to Finland if it succeeds in limiting countries’ need to compete with each other through tax rules.

In summer 2015 the EU Commission will issue a new action plan, based on the BEPS project, on EU-wide measures regarding fair and efficient corporate taxation. The aim is to tax profits in the country where they originate. The public availability of ownership data will be developed at the EU level, as will enterprises’ public tax reporting internationally and nationally. In Finland, tax footprint reporting is already required of enterprises where the State of Finland is a majority shareholder.

The comprehensive programme to support developing countries’ tax capacity will be expanded further so that countries’ capacity to strengthen the national financial base, inter alia to provide basic services, would increase and their internal inequality and dependence on development assistance would be reduced.

Additional information: Sonja Kekkonen, Special Adviser to the Minister for International Development, mobile tel. +358 50 455 4680; and Counsellor Hanna Rinkineva, tel. +358 295 350 951.

Sirpa Paatero
 
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